Posted by: Josh Lehner | April 18, 2018

Apartment Demographics and the Outlook

This morning I am presenting at the Spring 2018 Multifamily NW Apartment Report event. The big picture takeaway from the Portland rental market is something like the following. The continued supply of new apartments is beginning to result in a rising vacancy rate, and the flattening of rents. In fact 7 of the 20 submarkets covered in the report saw rents decline. For renters and the overall economy, this is a welcome respite from the affordability problems in the past decade. When coupled with ongoing household income gains, it means housing affordability is set to improve in the coming years.

However, this market reality, when combined with rising interest rates and slowing economic growth, is potentially a cause for concern for some developers, lenders, and property owners. It depends upon the financing and assumptions upon which their projects were built, or in some cases still being built. There is likely to be some near-term adjustments, or even financial pain, particularly for the buildings still being built and for some of the apartments built this cycle as they begin to come due for refinancing. These trends and issues are always part of the development cycle, and it looks like we are now there.

With this backdrop, my brief remarks touch on Portland’s transformational growth in the past decade, but primarily focus on medium- and long-run expectations for population growth. This catch-up in the supply of new apartments is beneficial in the near-term sense as it helps with affordability, and over the coming years it also means there will be units for new residents to move into. Here in Oregon, one of our key comparative advantages is our ability to attract and retain, young, skilled households. While this is a huge boon to the regional economy, it also means population growth is our biggest risk to the outlook. Should migration dry up for any reason — be it a poor economy, or the lack of housing affordability — our longer-run forecasts would be revised lower. Given the fact that the natural increase of population will turn negative in a decade, we are even more reliant upon migration than in decades past. For now, the expectation is for a continued influx of new residents each year. As the economy transitions down to more sustainable rates of growth overall, so too will population gains.

While the immediate future will most likely show more apartments delivered than can be immediately filled with residents, over the medium term this does not appear to be much of a concern. Population forecasts expect that over the next 5 years, the Portland region will welcome nearly 6,000 new residents each year between the ages of 20 and 34 years old, the core apartment demographics. Households in their early- and mid-20s rent about 80% of the time. Gains the following 5 years will be slower, but still a bit more than 4,000 new residents in this demographic. Keep in mind by new residents I mean overall increases in this age group. It is a combination of migrants moving to the area, but also current residents aging into and out of different age groups.

When you take a look at projections for household formation across all age groups, it shows that the Portland area is expected to see healthy gains in the coming years. These projections are based on the population forecasts and the current rates of household formation and homeownership by age group. Given this, the majority of the household gains are expected to be owners now that we are past Peak Renter. Household finances and demographics are working in favor of ownership in recent years. That said, the biggest takeaway from this work is that there will be enough households in the future. Lack of housing demand is not the issue. The challenge is that the region will need to build considerably more than it already has if these population forecasts are reasonably accurate.

In terms of thinking about the risks to these projections, three stand out. First would be the business cycle. We know migration slows during recessions and people hunker down and move less. Given expectations already are for slowing population gains, a recession scenario relative to the baseline would show household increases that are maybe 10% less than baseline over the next 5 years, and a smaller decline over 10 years. Somewhat similarly would be the second risk of not building enough housing overall. This scenario would result in worsening affordability which would slow or even choke off population growth, proving these projections optimistic. This scenario would also lead to more displacement as only higher-income households could afford to move to the region. The third big risk to these projections is the owner-renter split itself. As mentioned above, it is based on the current market, and current homeownership rates by age group. If the region does not build enough ownership product, then more households will continue to be renters even they have the resources and desire to be owners.

Posted by: Josh Lehner | April 17, 2018

Tax Day 2018

Happy personal income tax filing deadline day everyone! I know that doesn’t have quite the same ring to it as a real holiday or big event and you aren’t nearly as excited about it as we are. However Oregon is a personal income tax state; they make up 88% of the General Fund this biennium. Besides providing the bulk of state resources, tax returns also produce a wealth of data about Oregon households. This includes the basics about the number of taxpaying households, the sources of income, the growth of different types of income, and even migration patterns. But tax returns also produce more detailed data you cannot get from any other source, this includes things like usage (and amounts) for the various credits and deductions which can help policymakers evaluate, well, policy. Tax returns are also our only real source of information on capital gains, which swing wildly over the business cycle. So with all of this in mind, on this Tax Day 2018, let’s take a look at a few pieces of information that tax returns provide.

First, let’s take a look at a breakdown of Oregon full year filers, that is taxpayers who lived in Oregon for the entire year. This is 2015 data, which is the most recent year for which complete data is readily available from the great personal income tax statistics report from our friends over in the Department of Revenue’s Research Section. In the chart below you can see that just over half of taxpayers in Oregon – 52% – have adjusted gross incomes (AGI) of less than $40,000. In total, these 52% of households received 13% of all income that year, and paid 9% of all income taxes. On the opposite end of the spectrum, Oregon taxpayers with incomes above $250,000 accounted for 2.5% of all full year filers, they received 23% of all income, and given Oregon has some progressivity to its income tax, these households paid 30% of all income taxes.

It’s not just the total amount of income and taxes paid that matter, but also the components of income or the different types of income. In fact in our office’s forecast work, we look at and forecast these various types of income separately given they have varying trends and drivers of growth. This second chart shows big picture trends in the past decade or so and comes directly from the DOR research report. Here you can see both the trends over time and also the relative size of the income components. Wages are by far the largest source of income, and follow the labor market. Investment-related income, in particular capital gains, are the most volatile source due to asset market fluctuations and taxpayer behavior – the timing of when someone decides to sell. Retirement income fluctuates some, but is growing over time due to demographics and Baby Boomer retirements.

Finally, I wanted to highlight two more things. One, the California Legislative Analyst’s Office (LAO) just put out a visual guide to California’s tax system. To be honest, it’s a great report that illustrates many key facts and trends about public revenues, and includes links to more detailed analyses for those interested in more. Two, the sources of income for taxpayers in different income brackets matters considerably in understanding incomes, volatility, and taxes paid. Our last chart comes from the LAO report and show this breakdown for California taxpayers.

The combination of volatile revenue sources among the highest-income taxpayers, and some progressivity to income tax rates is what really drives the overall volatility of income tax revenues for the public sector. This, of course, is not entirely a bad outcome. There is a clear risk vs reward tradeoff between income taxes and sales taxes. Each has their benefits and their issues. In particular, what income taxes lose in stability, they gain in terms of equity (not being regressive) and also in avoiding the big tax base erosion problem that plagues general sales taxes.

Bottom Line: Don’t forget to file your return today to avoid penalties. And by doing do, you will also help provide our office more information on the state of Oregon taxpayers and what policymakers can expect in terms of available resources as we work on the next economic and revenue forecast.

Posted by: Josh Lehner | April 13, 2018

Downskilling in a Tight Labor Market

In a tight labor market, bargaining power shifts back toward workers to some degree. Businesses have a harder time attracting and retaining workers. Wages are bid up and firms need to dig deeper into the resume stack to hire candidates they previously passed over. Workers themselves feel more confident in their prospects and more likely to quit or switch jobs. All of the above is happening more today and one item I am trying to track is whether or not firms are downskilling their positions in order to fill them.

What I mean is during and after the Great Recession, employers upskilled many positions. That is they added additional education or experience requirements for new hires. Some of this was so firms could be more productive during tough economic times. Some was likely taking an opportunity to shift the nature of these positions and head in a different direction. But we also know some upskilling was used more as an HR screen during a time when employers were flooded with applicants. Remember, there were 10 or 12 unemployed Oregonians for every job opening. It was clearly a buyer’s market. Downskilling is this process in reverse; employers loosen requirements, particularly those of less importance to the tasks and duties of the position.

In practice we know this is happening to some degree. The share of prime working-age Oregonians with a job had essentially returned to pre-recession rates for each level of educational attainment. Surveys show that Oregon businesses are having trouble finding workers in general, rather than pointing at technical or soft skill “shortages” as much. Additionally, relatively new research from Modestino, Shoag, and Ballance finds that:

“… a 1 percentage point reduction in the local unemployment rate is associated with a roughly 0.27 percentage point reduction in the fraction of jobs requiring at least a bachelor’s degree and a roughly 0.23 percentage point reduction in the fraction requiring 5 or more years of experience.”

However, I couldn’t just leave it at that so I turned to the LEHD data to look at educational attainment for new hires in Oregon. In the chart below the blue dot is the share of new hires by industry with a college degree in 2010 which was the bottom of the cycle and also when the college graduate share was highest. The red dot is the share last year. Overall a smaller share of new hires in Oregon do have a college degree, however these changes vary considerably by industry. What is most surprising about this data is that the industries with higher levels of educational attainment have seen the largest declines. Counter to that, industries with lower levels of educational attainment, like retail and leisure and hospitality, have seen their college graduate share stay steady or even rise during the economic expansion.

One possibility for the drop in the share of college graduate hires could simply be the industry mix. Sectors with lower levels of educational attainment are hiring more than those with higher levels of educational attainment. This does appear to be in play, but accounts for a minority of the overall decline. The majority is due to a lower share within industries. This is possible evidence of downskilling.

Another possibility for these patterns may simply be a shift in the occupations that businesses are hiring, which may or may not be true downskilling. After running lean for years, firms may now be filling out their office support staff, or their sales teams and the like in greater numbers. This shift would alter the educational attainment figures, but for a different reason. However, even as these middle-wage jobs are growing again, I cannot say for sure this is driving the pattern seen in the data, but it is a possibility.

Finally, given the EPOP gains for those with a high school diploma and especially for those without a diploma or GED, it means firms are hiring fewer associate degrees or those who attended college but did not graduate, the so-called “some college” group. This is clearly happening in the new hire data as well.

Again, the differences across industries is interesting. Here you can see that while retail and leisure and hospitality may not be hiring a smaller share of bachelor degree holders, they are hiring more high school, or less than high school workers.

Overall these patterns are interesting. Businesses are responding the shifting nature of the business cycle. As Modestino, Shoag, and Ballance note, some of the upskilling may have even been optimistic, however as the economy changes, so too may firm needs.

Finally, there is one labor issue our office is hearing more about: drug testing. We always have people come up to us after presentations to discuss issues and concerns, however it seems like more of these involve finding workers who can pass a drug test. This goes for both individual companies and for temp agencies. We don’t have a good answer and it seems puzzling to us. Right now there are two main issues: first and foremost a tight labor market means it is harder to find workers in general, and second many of these testing failures are marijuana-related it seems, which is obviously legal in a growing number of states. One possibility we have heard that makes some sense is that a drug-free workplace is important for insurance reasons. This is particularly true in construction where general contractors require subcontractors to employ drug-free workers. Another possibility may be compositional. Drug testing for some companies may be the last requirement they are unwilling to budge on (understandably so in some cases) and so drug testing becomes a larger share of their labor problems in a tight market but is not necessarily a growing problem in total. The darker timeline would be drug issues truly are a growing problem. Any thoughts you have on this please email me.

Posted by: Josh Lehner | April 11, 2018

Oregon’s Trade with China (Graph of the Week)

This morning I am giving a presentation to the Port of Portland Commission. The overall presentation focuses on the economic outlook. However, given current events, tweets, and the Port’s missions and goals, there is also a focus on international trade.

Oregon regularly ranks as the 10th to 15th most trade-dependent state in the nation, depending upon the year. The Brookings Institute goes so far as to rank the Portland region as a Top 10 most trade-dependent metropolitan area. And a lot of Oregon-produced goods flow through the Portland region on their way to customers around the globe. As such, there is no question our regional economy, and the Pacific Northwest more broadly, has a larger exposure to trade than many parts of the country. In particular, our trade is primarily with other Pacific Rim countries, Canada and China being the most prominent. Overall these trade relations have been beneficial for Oregon and Northwest firms and products. However, when the script flips, as it may be starting to, these previous tailwinds for economic growth can turn to headwinds.

Over the past two decades, Oregon’s business ties and relationships with China have increased considerably. In fact, since the Great Recession, China has been Oregon’s top destination for our exports of merchandise goods (or physical products). The total value of these exports range from $3-6 billion per year in recent years. OK, so what does all of this imply for Oregon’s exposure to the tariff saber rattling? We try to answer that in this edition of the Graph of the Week.

To date there have been a few rounds of tit-for-tat tariff announcements. To get at the impacted sectors we took China’s official WTO submission for the retaliation against the U.S. aluminum and steel tariffs, and combined it with the great work that the Peterson Institute for International Economics’ Chad Brown did on the more recent round that included soybeans, autos, and the like. Matching these industries with available export data shows that about $500 million of Oregon exports to China are likely impacted. This represents our first effort along these lines and will adjust our estimates moving forward as the list of tariffs change, and/or we get better data or a better methodology.

Obviously $500 million is a big number. However, it may also help to place it in context of the overall economy. Total trade with China is about 2% of Oregon GDP in recent years, at least in terms of its size. This does not mean exports to China account for 2% of GDP, or 2% of economic growth, rather we are using GDP as a measure to help frame the discussion. The tariff-impacted exports to China are about 0.2% of state GDP in terms of their size. This essentially matches the U.S. estimates of 0.3%. Oregon’s large high-tech exports to China explain why the tariff-impacted exports are a relatively small share of the total. Tech exports so far are not on the list and are mostly within firm shipments of intermediate goods and not necessarily truly selling products on the open market.

However, even these total figures may overstate the potential impact of the tariffs in Oregon for a couple of reasons. First, even if these tariffs do get put in place, trade will not plunge to zero overnight. That said, higher prices due to the tariffs are likely to weigh on exports and we will see declines. Second, the export data is imprecise even as the Census does its best to trace exports back to where they came from. In particular, the data show that Oregon has a couple hundred million dollars of auto exports to China. Obviously Oregon is not an auto manufacturing hub. However a lot of autos do make their way to Oregon and then out into the world. I have heard various stories over the years, but we may even do a final touch-up or two on the cars before they are loaded and shipped out. To the extent auto exports decline, Oregon will see a drop in export-related jobs and activities, just maybe not hundreds of millions of dollars worth*.

Bottom Line: Oregon has a larger trade exposure to China than most states. Historically this has been beneficial for local firms. However as the trade winds shift, this exposure has the potential to be a drag on the regional economy. Offsetting this risk somewhat is the fact that Oregon’s trade exposure on tariff-impacted sectors is right around the U.S. average, and likely somewhat lower once data issues are taken into account. So far, this bilateral saber rattling could result in some clear economic losers in Oregon — like farmers and aluminum scrap exporters — however it is unlikely to derail the regional economy. The main economic risk remains a broader trade war that disrupts global supply chains. Should this come to pass, via continued escalation, it will be a much bigger economic problem.

*Another possibility is that these truly are Oregon exports, but miscoded into the wrong category. For example, some of our machinery, or rail-related or heavy trucks could be showing up in the automobile sectors. This is also plausible given all of these products do fall within transportation equipment more broadly. Regardless, if autos do take a hit, we would still expect to see an export job-related hit locally.

Posted by: Josh Lehner | April 6, 2018

Fun Friday: Rockin’ the Suburbs

Previously we took a look at Oregon’s very precedented growth. Today’s population gains are on par with the growth seen pretty much every year during the 1990s technology-led expansion. In many parts of the state the gains today are smaller than the 1970s as well. This is particularly true in growth rates, given we’re a much larger place today than a generation or two ago. However, there are a few places in Oregon that are growing about as fast as they ever do. And there is one place in particular where population gains truly are unprecedented in its modern history: the City of Portland.

In the 1980s and 1990s the City of Portland had a few annexations that boosted their population numbers, even if the actual population wasn’t increasing all that much. What was the City’s gains were the County’s losses. Once you adjust for these annexations, it looks like you have to go all the way back to 1900 to 1910 to see population gains in the City of Portland that are as large as we’re seeing in recent years. It’s entirely possible that the population increases in recent years truly are unprecedented as annexations may have been in play in the early 1900s as well.

Of course the story of strong city growth isn’t new. We’ve seen great research on the Triumph of the City, on the Shortage of Cities and the like. This relative pattern of growth has taken place in many metropolitan areas around the country, including our friends to the North. In recent decades, the primary city in the Portland and Seattle metropolitan areas — that is the City of Portland and the City of Seattle — are experiencing an increasing share of the population growth. Gains are stronger and faster in the city than in the rest of the region. This is a stark turnaround from the stagnant/stable populations in the 1950s and 1960s followed by population declines in the 1970s. This postwar period resulted in the building of many suburban neighborhoods, and some households left the city.

That said, you may notice something about the above chart. Even with the increasingly concentrated growth in the primary city, and really the urban core of the primary city, it still represents a minority of a region’s overall growth. I think this distinction gets lost at times in the discussion of growth, urbanization, planning and the like. Most of the population growth is still occurring in the suburbs, just not as much as before. To get the full picture it is important to understand the differences between levels (the actual number of population gains) and rates (the percentage increase). Both are important and both things can be, and are true at the same time.

First let’s take a look at the annexation-adjusted population gains and growth rates for the Portland MSA.

Second let’s do the same thing for the Seattle MSA. You’ll notice right away that the growth in the City of Seattle is exceptionally strong. The growth in the City of Portland is basically half that of the City of Seattle. I personally has surprised by this result. Note that I am using the published Seattle figures from the State of Washington Office of Financial Management here. I could not find anything specific on Seattle annexations, so am unsure how, or if they impact these figures. I apologize for any issues in advance.

Finally, let’s take a quick look at new construction activity relative to population growth. Here too you see that the Seattle region’s activity is significantly larger than the Portland region’s. Over the past few decades, relative to population growth, the Seattle MSA has built about 12% more housing than the Portland MSA. That works out to about 45,000 fewer housing units in Portland, once you adjust for population size and population growth. That is 3 entire years’ worth of new construction activity in the Portland region. This is one reason why our office places Portland housing affordability as worse than Seattle’s in our Housing Trilemma research. Portland and Seattle home prices relative to household incomes are nearly identical. However Seattle has a slightly higher vacancy rate – meaning it is easier to find a home to buy or an apartment to rent – and it has significantly fewer rental households that are classically cost-burdened – spending 30% or more of their income on rent. Again, housing supply matters.

Addendum: In the vein of levels vs rates, it is also important to keep in mind lifecycle vs generational effects. There are more and more articles cropping up in the past year or so talking about how Millennials are increasingly moving to the suburbs. This is true, and our office first dug into it back in 2015 with our Peak Renter work. However this shift is about lifecycle effects. As one ages out of her early- and mid-20s, and into her root-setting and prime-working years, her needs and wants change. That single family home in the suburbs with the good schools looks a whole lot more attractive to a 35 year old than a 25 year old. Even so there are two things worth mentioning.

First, even with these lifecycle effects, the generational effect is still evident. Millennials and young adults still live in urban neighborhoods to a larger degree than past generations. Research shows this is mostly a young college graduate, and if we’re honest about it a white college graduate shift. Second, even as Millennials begin moving out of apartments and into single family homes in larger numbers, the generation that follows will very likely move into those apartments. This is particularly true in a place like Oregon, and in Portland that sees net in-migration among 20- and 30-somethings. Peak Renter refers to the renter vs homeowner share of households, not the absolute number of renters. Or at least that is the case here in Oregon.

Posted by: Josh Lehner | April 3, 2018

Oregon Job Polarization, 2017 Update

As the economic expansion matures and the labor market tightens, it brings along with it the feel-good part of the business cycle. Wages and household incomes are rising while poverty rates are dropping. Employment has picked up in rural areas even as it slows in the large, urban centers that turned around first following the recession. Additionally, employment prospects are up for all levels of educational attainment. Now, in keeping with this pattern we’re finally seeing good growth again among middle-wage jobs here in Oregon the past few years. No longer is the economy only creating high- and low-wage jobs like it was early in the recovery. In fact, according to the latest occupational data released last week by BLS, Oregon’s middle-wage jobs in 2017 grew at a faster pace (2.8%) than both high-wage (1.4%) and low-wage (2.0%) jobs. This marked the largest middle-wage increase in the past 15 years, just edging out 2006’s gains.

Importantly, this growth is not confined to the state’s metropolitan areas either. Both urban and rural Oregon saw strong middle-wage job increases last year.

The gains are fairly spread out across the middle-wage occupations, which pay roughly $35,000 – $50,000 for the typical worker in 2017. As we detailed in our office’s 2013 report, middle-wage jobs can be broken down into those which are more population-driven and those which are more business support.

As Oregon’s population growth picked up in recent years, it’s no wonder that we are seeing more community and social service workers, more educators, and more artists, designers, and entertainers. Additionally, along with a rising population we’re seeing more construction workers, and installation, maintenance, and repair workers as well. All of these occupational groups saw above average gains last year in percentage terms.

Middle-wage jobs that are more business support occupations, like production workers or office and administrative support staff, are those most impacted by technology and have seen the largest employment declines in recent decades. That said, these occupations are seeing some gains in recent years and they do not decline forever, even as this growth is harder to come by over time.

Now, even as growth picks up among middle-wage jobs, there are still fewer today than prior to the Great Recession. Over time these jobs make up a smaller share of employment as growth is concentrated, or polarized, in both high- and low-wage occupations. A few good years of gains, like Oregon has seen recently, does not change these big picture trends and issues, even if they should be noted and celebrated.

Finally a couple of notes on data and methodology. The specific data used here comes from the BLS’ occupational employment statistics (OES). This data really is designed to be a point-in-time estimate and not used to track changes over time. Furthermore, as our friends at the Employment Department note, this data is modeled, which means it uses information beyond just employment survey data. So why does our office, and both the New York and San Francisco Fed use it like we do?

First, these polarization trends are best viewed through the occupational lens. I cannot stress this enough. The issues and impacts of technological change are about the duties and tasks that workers perform. It is not confined to a specific industry or two. Rather these issues cut across all industries, particularly for things like office and administrative support jobs. Even in, say, manufacturing where we are seeing job growth, it is more about the non-production occupations (architecture and engineering, computer and math) than the actual production jobs which make the physical products.

Second, given the importance of occupational data to these issues, the OES data is the best readily available data we have. It’s not perfect of course. And one issue here are changing definitions over time, which can make historical comparisons problematic. Thankfully, many of these definitional changes are at the detailed, or individual occupation level, and not at the occupational group level. As such, definitional changes are less problematic for much of the polarization research, although they are not entirely benign.

Third, even if you look at consistently-defined occupations over time, like the good folks at the University of Minnesota create, the same trends are evident. The year-to-year fluctuations are different of course, however over the past decade the underlying household survey data and the OES data are nearly identical.

Bottom Line: The economic expansion has reached all corners. The feel-good part of the business cycle is clearly here. We’re finally seeing some good growth among middle-wage jobs again. This is at least in part due to our stronger population gains. The near-term outlook remains bright, barring an international trade war. Over the long-run, however, middle-wage occupations are still expected to comprise a smaller share of the economy due to shifting workplace practices and technological change. High- and low-wage jobs will continue to lead growth in the future.

Posted by: Josh Lehner | March 27, 2018

Oregon’s Unprecedented Growth?

A common refrain our office hears is that Oregon’s growth in recent years is unprecedented. Meaning that we’ve never seen population growth like this before. This is usually in the context of the housing market and explaining away our shortage more as a function of extremely high demand, and less about the supply issues. As such, I think it may be helpful to take a graphical trip down memory lane. The bottom line is that yes, in many places in Oregon, mostly urban, we’re seeing population gains that are better than in the 2000s but on par with the 1970s and the 1990s. Remember, people have been packing up and moving to this part of the world since before Lewis & Clark. Population growth and migration is nothing new. It is ingrained in our community and economy and remains our number one comparative advantage.

Furthermore, in percentage terms, today’s population growth is less than the increases experienced in the 1950s, 1960s, 1970s and 1990s. You can see this in the chart below which comes from a previous post looking at population and housing history in Oregon. Adding on a few more decent years of growth to the 2010s doesn’t change this big picture overview.

The statewide trends are largely seen at the regional level as well. Population gains today are generally larger than a decade ago, however not larger in absolute terms or percentage terms than those experienced in the 1970s and 1990s. Oregon has grown significantly faster in our recent past. There is nothing unprecedented by recent population numbers.

Now, there are a few exceptions here; don’t get me wrong. The counties below are adding new residents today about as fast as they ever do. And it’s not just in urban areas either. Additionally, the City of Portland is truly seeing unprecedented increases in its modern history. However, the rest of the Portland MSA certainly is not. I’ll have a bit more on the city versus suburbs thing soon.

I guess at the end of the day, I really just feel like this Spiderman meme.

Posted by: Josh Lehner | March 16, 2018

Retail and E-Commerce (Graph of the Week)

Happy Friday everybody! Two quick items of note and a Graph of the Week.

First, the U.S. Bureau of Economic Analysis just released a new report on the digital economy. BEA published a working paper I am still digging through, but as you would expect, the research finds the digital economy is growing significantly faster than the overall economy. They dive into the different components of the digital economy like digital-enabling infrastructure – computers, software, telecomm – in addition to e-commerce and digital media. The BEA has data to download on how the digital economy impacts different industries in the economy as well. Here is a bottom line summary from the paper:

From 2006 to 2016, BEA estimates that digital economy real value added grew at an average annual rate of 5.6 percent, outpacing the average annual rate of growth for the overall economy of 1.5 percent. In 2016, the digital economy was a notable contributor to the overall economy – it accounted for 6.5 percent of current-dollar GDP, 6.2 percent of current-dollar gross output, 3.9 percent of employment, and 6.7 percent of employee compensation.

Second, I had the fortune to be a part of a panel discussion and work group at the Urbanism Next conference last week in Portland. Urbanism Next is part of the Sustainable Cities Initiative and the University of Oregon. Their big focus is on how technology is changing cities and includes some fascinating research. Where I come into this discussion was one session that focused on the intersection of technology/automation and public sector finances. How do autonomous and electric vehicles, e-commerce, and yes, even the hard-to-define-yet-even-harder-to-see-in-the-data sharing economy impact both public sector revenues and expenditures. Getting to hear the thoughts and strategies from urban planners, developers, and transportation folks was enlightening and added depth to these issues in terms of how we economists think about them. CityLab’s Laura Bliss didn’t write about the session I was a part of, but she did write about the long-term outlook for suburban retail and some of the new research on this.

All of that brings us to this edition of the Graph of the Week. The key point I tried to make at the conference, and in other presentations is about the size and scope of the retail landscape. Yes, e-commerce type jobs are growing briskly — nearly 8 percent annually in recent years. However they remain considerably fewer in number than the classic brick and mortar retailers, let alone compared with all other retailers. In fact, those other retailers continue to add significantly more jobs in recent years. The retail apocalypse narrative is overdone, even with the Toys “R” Us announcement this week – it was less their sales and more their debt from a leveraged buyout a decade ago.

It is easy to fantasize about drone deliveries eliminating many retailers and simultaneously relieving traffic congestion, but the path from today to this yet unknown future is likely to be longer and more meandering than the conventional wisdom suggests, at least as I read it. I really try to avoid being Abe Simpson and the “old man yells at cloud” guy, but these technological changes and economic transformations are usually slower-moving but very profound forces over the long-run. This isn’t to suggest that we don’t have too much retail space. One big issue there is the type/size of retail space and its location. We’re certainly seeing some mismatches on those fronts that are likely to continue. Similarly our office expects retail employment in Oregon to continue to grow, due in large part to our population, but at considerably lower rates than those seen in the typical industry. Retail over the next five years will add jobs at less than half the rate of the economy overall. Wholesale and transportation, warehousing, and utilities will see somewhat better growth rates, however the components within that tied more directly to e-commerce should continue to see stronger gains.

Posted by: Josh Lehner | March 14, 2018

Labor and the Trades

In recent months, I have had numerous conversations and given presentations that focus on multifamily and nonresidential construction. This work includes the issue of finding workers for the trades in a tight labor market. Below are a few thoughts. All of the data is U.S. data in large part due to sample size concerns.

First, I want to define what I call classic blue collar occupations. We’re talking about occupational data here, based on what tasks and duties the workers actually perform, not industry data which mixes front line workers with back office staff. Classic blue collar occupations include four occupational groups: construction, installation, maintenance and repair, production, and transportation and material moving. Reminder that production jobs are, essentially, the manufacturing jobs that do the actual manufacturing. In the job polarization research all of these occupations are routine manual jobs, and are considered middle-wage jobs.

The most common issue our office hears is that it is hard to find workers. The labor market is getting tighter, due to both the strong economy and due to demographics as Baby Boomer retirements pick up. However, as I stress in these conversations and presentations, this demographic issue is widespread and impacting all industries and occupations. The trades, or the classic blue collar occupations are not facing worse demographics than other occupations. That does not mean, however, that it isn’t a problem and isn’t a challenge for businesses. The point is that the tight labor market impacts everyone. The good news, especially in places like Oregon with its migration trends, is that there are more warm bodies walking around today. The challenge is attracting them to come work for your firm.

Now, one issue the classic blue collar occupations do face is that fewer young adults are working in these jobs. The relative decline is seen among young women and among young men. The key question here is how much of this is a demand side problem — fewer jobs available — and how much is a supply side problem — fewer young adults willing to enter into these professions. I do not have a perfect answer here. However the patterns and timing of the declines point toward demand side issues being the primary driver. Jobs disappear in recessions and don’t come back, or at least not all the way, in expansions. This is particularly true for production jobs. That said, I don’t believe you can entirely ignore supply issues either. The combination of fewer vocational or career technical education classes in high schools and the increased focus on attending four year universities are likely acting as supply side constraints in terms of young adults knowing about and/or considering entering into these professions.

The decline seen above among young women is entirely about production jobs. The share of young women employed in the other three blue collar occupational groups combined has held steady in the 1-2% range over the past 40 years. As that percentage implies, and as you probably know, these blue collar occupations overall are dominated by men. Nationwide and across all ages, women are 3% of construction jobs, 4% of installation, maintenance and repair jobs, 17% of transportation and material moving jobs, and 29% of production jobs. As such, women clearly represent a largely untapped labor pool for businesses looking to hire and expand. (Another place the labor will come from will be young adults more broadly, as higher ed enrollments, particularly among two year programs, decline in a stronger economy.)

That said, I am focusing on just men — 85% of all blue collar workers today — in this final set of charts due to sample size concerns as I dig into the microdata. These charts show the share of men employed in each blue collar occupational group over their lifetime by birth cohort. So as you follow one line left to right, it tracks that birth cohort as they age into their 20s, their 30s, their 40s, and their 50s. Each separate line represents a different birth cohort. This allows you to see both lifecycle and generational effects or trends.

A few trends do stand out:

First, there has been a relative decline in employment across all blue collar occupations, but to somewhat varying degrees. The decline is particularly large for production jobs, seen in the lower left. There really are fewer production (manufacturing) jobs today, and you can see the decline over time among the younger and older cohorts.

Second, the Great Recession clearly impacts the 1990 cohort to a significant degree. There really were fewer job opportunities for this group when they entered into adulthood and even after college. This is particularly pronounced in construction jobs, seen in the upper left. There was no erosion among young men entering the field for the 1960, 1970, or 1980 cohorts. However in the aftermath of the housing bubble, there certainly was. Encouragingly, as the jobs have come back to the industry, so too have young workers. The employment share is rising quickly for both the 1990 and 1995 cohorts.

Third, there is considerably less erosion among installation, maintenance, and repair workers over time. In fact, recent cohorts are just a hair below previous generations. This is good news, because these jobs, along with construction (particularly the nonresidential) are the gold standard for career paths that do not require a four year degree. Both of these occupational groups are largely population driven and less prone to automation or offshoring. They are growing middle-wage career opportunities.

Fourth, the gap in transportation jobs for young workers is largely about laborers and packers. However the surge in employment among the 1995 cohort is closing that gap quickly, as it is largely contained to these specific occupations. I suspect, but cannot confirm, that these would e-commerce related jobs which have increased considerably in recent years. Still, there is a 1-2 percentage point gap when it comes to generational differences for truck drivers. This amounts to about 30,000 potential truck drivers at every single individual age. Of course, as has been documented plenty, truck driving is a grueling profession with long hours on the road, and, you know, the supposed pending doom of automation is looming.

Bottom Line: All industries and occupations are being impacted by the tight labor market and Baby Boomer retirements. However classic blue collar occupations really are seeing fewer young adults enter into their professions. This largely appears to be due to the fact that there have been fewer such jobs in recent decades. However we cannot entirely ignore supply issues, nor pools of untapped potential workers, like women. In a yet unwritten future post I want to highlight some of the programs in place in Oregon that work on career technical education and apprenticeships. Looking forward, I am optimistic about more young adults entering into the trades, particularly in the better-paying construction and installation, maintenance, and repair jobs which cannot be offshored nor as easily automated away. These remain growing fields of work.

Posted by: Josh Lehner | March 7, 2018

Update on Rural Housing Affordability

As our office documented a year ago, housing affordability truly is a statewide challenge. It is a major concern in our fast-growing urban areas, and throughout rural Oregon as well. In fact, rural Oregonian incomes are on par with rural American incomes, however home prices are 30 percent higher here and rents are 16 percent higher. These differences mean rural Oregon faces an affordability crunch. Pinpointing the exact reason for rural Oregon’s housing challenges can be difficult, however the data do tell a clear, or at least a consistent story.

First, rural Oregon has experienced faster population growth than the rest of rural America — 50% faster growth in the 1990s and twice as fast in the 2000s to date. This results in stronger demand for housing. Given that new construction is almost always more expensive compared to the older housing stock, a more modern mix of housing, or a larger share of newer homes can lead to higher prices when looking at the market overall. This does not appear to be the case in rural Oregon, however. There is not a larger share of homes built in the last decade or two. Housing prices in rural Oregon are more expensive than their national counterparts for all types of units and for all vintages in the housing stock.

As such, if a region experiences faster population growth but an average amount of new construction overall, that means the region is building less on a population-adjusted basis and the vacancy rate is falling. This is exactly the case in rural Oregon, where new construction since 2000 is approximately 30 percent less than in rural America on a population-adjusted basis. The result is rural Oregon’s vacancy rate is now nearly 2 percentage points lower than in rural America, while it was essentially the same back in 2000. Stronger demand coupled with limited supply is the classic recipe for rising prices. This is the story the data tells of rural Oregon’s housing crunch, when compared with rural America overall.

While these problems are more pronounced here in Oregon, unfortunately, they are not entirely unique. The lack of housing supply in Oregon’s urban areas, and in the other popular and fast-growing metropolitan regions of the country has eroded affordability everywhere. The lack of credit for single family developers and for land acquisition and development loans in particular appears to be a root issue impacting the supply. For more on the causes of the housing shortage, see our office’s previous report.

That said, some regions of rural American and rural Oregon face additional challenges in the form of vacation homes. Many ski resorts and coastal communities have housing markets based in large part on external demand rather than on local economic conditions. This places increased pressure on moderately priced homes, or so-called workforce housing. Along Oregon’s coast this issue is particularly pronounced. Both Lincoln and Tillamook counties have built an above average amount of housing in recent decades, at least relative to population growth. However after factoring in new developments targeted specifically as vacation homes, and an overall increase in vacation homes in general, the stock of workforce housing, or for local residents has barely increased. These pressures make affordability especially challenging for local residents. Furthermore, it also makes it difficult for local businesses to hire and retain workers, and results in longer commutes for individuals taking these jobs.

Finding a policy prescription to these issues is particularly challenging. I know some proposals suggest building more housing in, say, Otis and Toledo instead of Lincoln City and Newport. Additionally, Warrenton has historically absorbed some of Clatsop County’s growth whereas Astoria less so. However as The Daily Astorian detailed in their housing crunch series last year, Warrenton too faces housing affordability challenges in addition to political or societal objections to new construction. Obviously, more construction is needed everywhere to better align housing availability with demand if we hope to see better affordability moving forward. Our office’s baseline outlook does expect somewhat better market balance in the coming years with a continued pick-up in new construction coupled with slowing population growth. That said, expectations are not for a perfectly balanced market. That is unlikely to happen unless we see significantly stronger construction trends or a sizable reduction in demand which is unlikely to occur until the next recession. As such, affordability will remain a challenge in the near-term. Fortunately Oregon now has better household income gains that are helping with affordability via the denominator (income) rather than the numerator (housing costs).

Update: Here is a similar chart for new construction activity in the Gorge, by request.

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